Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: Bob, a potential for a thousand percent increase?
Bob Lenzner, national editor: Well, a very smart investment man called the demise of the investment companies and Japanese banks well before it happened. He's been trying to get me to invest in gold for over a year. Gold is up 38 percent, so we missed the beginning of it, but he's predicting it will go up another ten times based on a whole number of things - that people are losing faith in the dollar, war is coming, oil is up, what will you do to preserve the safety and value of your money?
David Asman: Mike, are you a "goldfinger", as well?
Mike Ozanian, senior editor: This guy is wired into the smartest moneymen on Wall Street, but I'm a bit skeptical on this one. The long-term bond rate has been going down. In fact, it's below 5 percent. That's never happened when gold is about to take off, since WWII.
Bob Lenzner: I don't know what bond rates have to do with the price of gold.
Mike Ozanian: Dissipation of inflation.
Bob Lenzner: He's saying whether there's deflation or inflation, the gold's going to go up.
David Asman: All right, look to gold. Melanie, you have the cover story on PepsiCo (PEP).
Melanie Wells, senior editor: Interesting stuff there. This is a company who has become huge by selling fat, sugar and calories. They own Frito Lay. What they're trying to do now is introduce snacks without so much sodium and fat. They want to avoid the lawsuits and if they can convince us to buy this stuff, they can charge a little bit more for it.
David Asman: Bottom line is it good for the stock?
Melanie Wells: It could be down the road. What they need to do now is convince people who don't eat snack foods that they want to eat these healthy foods.
David Asman: Joanne, what do you think?
Joanne Gordon, staff writer: I think it's a dangerous play. They've got to do it, but how do you start selling healthy foods without alienating your core customers who are gobbling Fritos?
Melanie Wells: Exactly. And that's tricky. They don't quite have that figured out yet. How do you sell this stuff without apologizing for Pepsi and for Doritos? They're still working it out. It's not perfect. People who are fat with cash may want to find a smaller company that sells healthier stuff.
David Asman: From one chip to another kind of chip. Mike?
Mike Ozanian: I'm a fan of Linear Technology (LLTC). They make analog chips. That's the high end of the market of microprocessors. Demand is up over 10 percent. I think profits are going to go up more than 20 percent in the next two or three years.
David Asman: But are people buying computers? I bought one this year for my daughter, but are other people buying them?
Mike Ozanian: The computer and telecom market, and the industries they sell to have started to deplete their inventories of the analog chips. This is different from what Intel (INTC) sells and Texas Instruments, which is the low end.
Bob Lenzner: As the price of computers comes down, the prices of the chips are going to come down and I don't see a big boom over. I don't think, given the price of that stock that it's really a good buy right now.
David Asman: Mike disagrees, though, right?
Mike Ozanian: Absolutely.
David Asman: All right, let's move it over to Joanne. Consulting? We've got computers, so we need consultants.
Joanne Gordon, staff writer: Companies do, but watch out in 2003. Not only are Information Technology budgets going to get that much higher, I'm hearing rumblings from people who watch the industry that outsourcing is getting some chinks in its armor. Outsourcing is when a consulting company takes over an operation for its client. The clients are renegotiating these contracts midstream either postponing them or canceling them.
David Asman: Bottom line is companies want to do it themselves.
Joanne Gordon: Also, with unemployment rates high, they can afford to employ IT staff.
David Asman: Which companies are in trouble?
Joanne Gordon: Computer Sciences (CSC), Electronic Data Systems (EDS) and IBM (IBM) are some of the biggest ones that could be hit.
David Asman: Quick word from Melanie.
Melanie Wells: I don't think the sky is falling Joanne. IBM just got a big contract from J.P. Morgan Chase (JPM) worth $5 billion.
Joanne Gordon: Yes, it was $5 billion. That's very true, however you've got to remember that margins are very thin in outsourcing and let's look at this contract three years in and see how much money they're getting.
David Asman: Good stuff from everybody. That's it for the Informer.
Makers & Breakers
David Asman: This week our guest stock picker is Ron Saba, portfolio manager at NorthRoad Capital Management. He's brought along a couple of stocks today that both he and his company own. Barclays, it's a British bank and Novartis, which is a company based in Switzerland. They may sound too Euro to you, but there's nothing wrong with Euro, if you're making money out of it. So, are they in fact winners? Back with us with those answers are Editorial Vice President Jim Michaels and Managing Editor Dennis Kneale. Ron, Barclay's bank, why do you like them?
Barclays (BCS)
Ron Saba, NorthRoad Capital Management: MAKER
It's a very well run bank. They've been very profitable over the last five years and have a return on equity between 17-18 percent.
David Asman: We should mention, by the way, that you're not buying the stock. You're buying something called an ADR.
Ron Saba, NorthRoad Capital Management: That's correct. American Depository of Receipt (ADR), which represents the ownership of generalized stock. It's an easy way of trading foreign stock. Barclays is a British bank with a market cap of 40 billion and very profitable. And very cheap right now.
David Asman: Well Jim, you like Citibank (C), do you like Barclays?
Jim Michaels, editorial vice president: BREAKER
Not particularly, no. I like banks with an international thrust. Barclays is very light in the US. I'd rather go with Citibank, or HSBC. Get the global thrust. I don't see any particular appeal in it.
David Asman: Dennis?
Dennis Kneale, managing editor: MAKER
Barclays is a bank right now where your bank is borrowing money at 1.5-2 percent and giving you a home equity loan at 4.25 percent. That's a pretty nice spread. Sounds good. The one question I have is, "Are you worried about any kind of big loan forced by regulators where they crack down on bad loans and banks have trouble?"
Ron Saba, NorthRoad Capital Management: They've done a very good job of accounting for those losses. We're very happy with their balance.
Novartis (NVS)
Ron Saba, NorthRoad Capital Management: MAKER
Novartis is a major Swiss pharmaceutical firm. It's very global with 50 percent of its revenues in the United States. Great drugs currently being sold and great drugs in the pipeline. Once again, cheap. Makes a lot of money and you can pay less than a market multiple for it right now.
David Asman: Dennis, what do you think?
Dennis Kneale, managing editor: MAKER
I like it. Novartis is run by one of the sharpest minds in the drug industry. This is a guy who when he saw promising results in a leukemia drug in two dozen patients and took a hundred million dollar gamble. It was a huge hit and I think this company's got more in the pipeline.
David Asman: Jim?
Jim Michaels, editorial vice president: BREAKER
I don't like anything with 25 times earnings in this market. The big pharmaceutical companies are growth engines, but they're vulnerable. We've seen what happened to Abbot (ABT) and Bristol Myers (BMY). We've see Merck (MRK) take it's beatings. At 15 times earnings, I'd love this stock, but at 25 it's too rich.
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